1 Dividend Stock to Buy Hand Over Fist and 1 to Avoid

GLP-1 drugs are all the rage on Wall Street today, with demand for these weight loss products expected to be strong for years to come. That's helped to supercharge Eli Lilly's (NYSE: LLY) growth and its stock price. However, you might be better off with this higher-yielding drug peer, even though it doesn't compete in the GLP-1 market.

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Too much of a good thing

Eli Lilly was second to market with a GLP-1 drug, but Mounjaro and Zepbound proved to be more effective than competing products. They are now the leading GLP-1 drugs, with 2025 revenue growth of 99% and 175%, respectively. Together, they account for 56% of Eli Lilly's top line. Eli Lilly has a lot riding on the success of these two drugs.

Wall Street isn't focusing on that risk; it has pushed Eli Lilly's stock price sharply higher. The price-to-earnings (P/E) ratio is 44, and the dividend yield is a miserly 0.6%. It looks like Eli Lilly is priced for perfection. If you have a value bias or prefer more income, you'll probably want to look elsewhere.

Merck operates in different places

Merck (NYSE: MRK) doesn't compete with Eli Lilly in the GLP-1 space. Merck is focused on treating cancer, infections, and cardiometabolic disease. These areas may not be as exciting as weight loss right now, but they are very important therapeutic categories. And while Merck has some patent expirations coming up, it also has a strong pipeline of new drugs.

Meanwhile, the big patent expiration for Keytruda in the U.S. market may not be as bad as it seems. Merck has international patents for the drug that extend into the early 2030s. It also has a new Keytruda delivery method that could extend patent protection into the late 2030s.

That said, the real reason to prefer Merck over Eli Lilly is a mixture of valuation and yield. Merck's P/E ratio is a far more reasonable 16, and its yield is a dramatically higher 2.8%. Merck also has a long history of supporting its dividend, which hasn't been increased every year but has moved steadily higher for over three decades. And with a payout ratio of roughly 50%, there seems to be little risk that a cut would take place at this juncture.

Eli Lilly isn't bad, just expensive

There's nothing wrong with Eli Lilly, per se. It is doing very well as a business right now. However, Wall Street has placed a very rich valuation on the stock. If you are looking for a dividend-paying pharmaceutical giant, Merck will probably be more to your liking.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck. The Motley Fool has a disclosure policy.